Altria ups dividend despite U.S. nicotine proposal hit to shares

NEW YORK (Reuters) - Tobacco company Altria Group Inc (MO.N) raised its dividend by 8.2 percent on Thursday, signaling the company did not expect a U.S. government proposal to reduce nicotine in cigarettes to threaten its ability to make the payment to shareholders.

The increase, which was widely anticipated by investors, came as tobacco stocks remained well below where they stood on July 28 before the U.S. Food and Drug Administration proposed cutting nicotine in cigarettes to “non-addictive” levels to encourage a shift to potentially less harmful e-cigarettes.

Shares of Altria are down 13.8 percent since then, while those of Phillip Morris International Inc (PM.N), which has a larger e-cigarette business, have lost roughly 4 percent over the same time.

The dividend increase pushes its yield up to approximately 4 percent, a level nearly double the S&P 500’s yield of 2.3 percent.

Analysts have pointed to Altria’s history of raising its dividend in August as a reason to buy its shares.

“We believe the recent dramatic pullback in Altria’s stock makes a compelling argument for the board to accelerate the return of cash to shareholders,” noted Bonnie Herzog, an analyst at Wells Fargo.

Herzog expected the company to raise its dividend by 9 percent in 2018 and has a price target of $80 on its shares, a roughly 25 percent increase from its current trading price of $63.69.

Annual dividend increases have helped Altria shares rise an average of 3.3 percent every August since 1981, according to Reuters data, compared with a 0.8 percent gain for the S&P 500. Overall, gains in that month have accounted for roughly one-quarter of the stock’s 14.3 percent annualized price return since August 1981.